Design/methodology/approach – The paper presents the results of a survey targeted at over 1,100 subsidiary CEOs of MNCs located in Ireland, a program of in-depth interviews of 24 subsidiary CEOs/directors, and a review of the literature relating to MNC and subsidiary management, are combined to identify emerging threats to subsidiary activities.

Findings – The main threats to subsidiaries' efforts to enhance their role within the MNC comprise: erosion of barriers to trade; growing complexities in corporate governance; and increasingly sophisticated information and communication technology (ICT) capabilities. These threats are enabling the disaggregation of value chains and increased headquarters monitoring and control. This shift in how subsidiaries are managed is leading to a cycle of subsidiary decline.

Research limitations/implications – the results from the survey are subject to the standard limitations and a larger pool of interviewees may have reinforced the qualitative findings.

Practical implications – To increase subsidiary managers' awareness of the need for a strategic response, the authors develop a cycle of subsidiary decline which illustrates how these emerging threats combine to undermine a subsidiary's position within the MNC. Disaggregating value chains and tighter headquarters control can reduce subsidiary bargaining power constraining its abilities to challenge for resources, in turn restraining its combinative capabilities and leading to a decline in its position and contribution to the MNC.

Many subsidiaries, as the recipients of change and in a state of transition, are now adopting more narrowly defined, specialised implementer roles, whilst also being exposed to greater monitoring and control by the headquarters. Surprisingly, despite a wide range of literature and research attesting to the value of subsidiary based contributions including learning, initiative creation and as a catalyst for innovation these fundamental changes have yet to be scrutinized in light of the potentially negative implications for the organisations ability to adapt, survive and innovate. In this paper we argue that reforms at the capability and structural level not only undermine subsidiary scope to contribute and innovate but may also signal an early warning sign of competence destroying change in the MNC. We trace the foundations of subsidiary based initiatives and innovations before addressing some prominent questions relating to organisational reform, strategic renewal and subsidiary based innovation with suggestions for future research.

Subsidiary units must respond to emerging threats including disaggregation of value chains and increased headquarters monitoring and control which have lead to a cycle of subsidiary decline. We recognize the value of subsidiary initiatives as a short term response but argue that subsidiary long term survival and growth will depend on the unit’s ability to align with its parent strategic activities and knowledge base.

Design/ Methodology

This research is part of an ongoing quantitative and qualitative study programme of Irish subsidiary operations of foreign MNCs. This paper integrates our broader research to date with both in-depth interviews of a focal case with a comprehensive review of the literature relating to MNC and subsidiary management to identify how subsidiaries can respond to current challenges.

Findings.

In contrast to the dominant view in the literature, our research found that subsidiaries can respond to emerging threats by integrating their activities and deepening their alignment with their parent operation. We identify three significantly important features in developing alignment – strategic embeddedness or ensuring development of subsidiary strategy in line with headquarters stated objectives, relational embeddedness determined by trust relationships and a history of consistent subsidiary delivery and finally knowledge embeddedness facilitated through coalescent knowledge creation and collaborative effort in line with headquarters strategy and direction.

Research Limitations.

Results from the survey are subject to the standard limitations and a larger pool of interviewees may have reinforced the qualitative findings.

Practical Implications.

Subsidiary managers need to be aware of how closer integration of unit activities with headquarters

and the management of knowledge outflows can reduce the risk of relocation and better position subsidiaries for survival and growth.

Originality.

By demonstrating the benefits of alignment with headquarters, this paper provides a valuable alternative perspective to the predominant view in the literature that subsidiary survival is dependent on subsidiary initiative. Capturing both the subsidiary and parent perspectives addresses a significant limitation of many studies and provides valuable insights.

Technology transfer is a key aspect of economic development and research administration. These concerns are shared equally between academia and industry on both sides of the Atlantic. As technology is developed at a greater rate, concerns about the technology transfer will heighten. This article focuses on technology transfer in Ireland, particularly in the SME (Small and Medium size Enterprises, under 250 employees) sector. As the main Lisbon Objective has not been met in Europe (“Europe is to become the most competitive and dynamic knowledge based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”), the authors suggest a better model of technology transfer applicable not only to Ireland and Europe, but with possibilities for the United States. Demonstrating the international dimensions of technology transfer, the article also provides an American perspective, demonstrating commonality of interest yet subtle differences.